Nooruladha’s Weblog


Ramunia Aseambankers ANALYSIS after the ONGC failure.
May 22, 2008, 3:35 am
Filed under: Uncategorized

Ramunia Holdings

Trading Buy (unchanged)
Drops RM2.2b ONGC project TP: RM1.70
Current Price: RM1.30 Price shoot up 14 cents yesterday after the ONGC news. Someone is snapping the counter up for POTENTIAL PLAY.
 Ramunia has dropped the ONGC B-193 job in India due to its inability
to provide a performance bank guarantee and insurance certificate.
 We are net positive on this turn of events, which will accelerate
MISC’s RTO exercise on Ramunia.
 Reiterate Trading Buy with an unchanged RM1.70 scenario-based TP.
Any price weakness is an opportunity to accumulate.

Drops RM2.2b ONGC project. Ramunia has conceded defeat in taking on the USD685m (RM2.2b) ONGC B-193 project in India, as it was unable to provide a performance bank guarantee and insurance certificate by the 15 May ’08 deadline. In an official announcement, Ramunia said that it had earlier sought for an extension of time until 31 May ’08 to comply with the project’s additional requirements, i.e. finalizing the revised schedule and cost of additional works for the Gas Sweetening Unit, not specified in the original contract (a long lead item with substantial impact to costs and delivery period). (Is this a typical conduct with Indian company? They seems to enjoy adding something else to contract)

Forfeited USD0.5m. Ramunia will forfeit the USD0.5m (RM1.6m) bid security due to this contract cancellation. We are informed that it will not incur additional penalty charges from this project withdrawal as both ONGC and Ramunia have mutually agreed that the termination has no additional binding clauses. As
such, Ramunia will recognize the RM1.6m loss in 3QFY08. Termination should accelerate MISC’s RTO on Ramunia. We are positive on this development, as it should accelerate MISC’s (MISC MK; Hold; TP: RM8.80) RTO exercise on Ramunia. The ONGC project was a major obstacle during the due diligence exercise carried out earlier, as it was perceived to be loss-making. This is consistent with our view all along that the ONGC turnkey project would not have been profitable, as it would have at best, yielded only yield razor-thin margins if executed well.
Reiterate Trading Buy with an unchanged RM1.70 scenario-based TP. The termination will drastically cut Ramunia’s outstanding orderbook by 77% to RM486m. However, we are optimistic that the ONGC loss will be compensated with new orders from PETRONAS local offshore fabrication projects from FY09 onwards, which should potentially generate higher margins. (Highlighted by me) As such, we cut FY08’s core net profit by 31% to reflect the loss on ONGC’s project but retain FY09-10 forecasts. Any share price weakness from this perceived negative newsflow is an opportunity to accumulate as investors will be essentially buying into MMHE – a direct proxy to PETRONAS’ Malaysian O&G play.

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Yeah well, potential after the RTO is the only think driving investor to this counter. Is it true that the ONGC job is delaying the RTO? Why is that? Is it because Petronas wants Ramunia to concentrate on Petronas order only? And what is the reason for that?

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